02281cam a22002897 4500001000700000003000500007005001700012008004100029100002000070245013800090260006600228490004200294500001800336520094900354530006101303538007201364538003601436690007401472690012701546690008401673700002401757700001601781710004201797830007701839856003801916856003701954w13504NBER20150802173644.0150802s2007 mau||||fs|||| 000 0 eng d1 aHong, Harrison.10aAdvisors and Asset Pricesh[electronic resource]:bA Model of the Origins of Bubbles /cHarrison Hong, Jose A. Scheinkman, Wei Xiong. aCambridge, Mass.bNational Bureau of Economic Researchc2007.1 aNBER working paper seriesvno. w13504 aOctober 2007.3 aWe develop a model of asset price bubbles based on the communication process between advisors and investors. Advisors are well-intentioned and want to maximize the welfare of their advisees (like a parent treats a child). But only some advisors understand the new technology (the tech-savvies); others do not and can only make a downward-biased recommendation (the old-fogies). While smart investors recognize the heterogeneity in advisors, naive ones mistakenly take whatever is said at face value. Tech-savvies inflate their forecasts to signal that they are not old-fogies, since more accurate information about their type improves the welfare of investors in the future. A bubble arises for a wide range of parameters, and its size is maximized when there is a mix of smart and naive investors in the economy. Our model suggests an alternative source for stock over-valuation in addition to investor overreaction to news and sell-side bias. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG1 - General Financial Markets2Journal of Economic Literature class. 7aG14 - Information and Market Efficiency • Event Studies • Insider Trading2Journal of Economic Literature class. 7aG2 - Financial Institutions and Services2Journal of Economic Literature class.1 aScheinkman, Jose A.1 aXiong, Wei.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w13504.4 uhttp://www.nber.org/papers/w1350441uhttp://dx.doi.org/10.3386/w13504